Is it better to lease or finance your new truck or trailer?
Let’s start by clearing up some misconceptions about commercial leasing and lending —
Does leasing mean you don’t need any money out of pocket? Nope.
If you were hoping that leasing would keep you from having to make a down payment, sorry — that’s only true if you would also qualify for 100% financing, which our lenders offer all the time, but only for well-qualified customers with good time in business.
Whether you lease or finance, your down payment (or “advance payment” or “out-of-pocket money”, or whatever you want to call it) usually looks about the same — depending on your credit, your time in business, and all of that. Why? Well, for starters, because of the answer to this next question…
If you lease the equipment, do you just turn it back in at the end of the lease? Nope again — you end up owning it. (That’s a good thing.)
At the end of the lease for commercial equipment like wreckers, carriers, and trailers, you end up owning the equipment at the end — there’s a token last payment of $1.00 or $101.00, and the equipment is yours. The bank or lease company isn’t planning on recouping their money by selling off-lease tow trucks on the auto auction, like they do with off-lease Hondas and BMWs, so your commercial lease is based on you owning the truck or trailer at the end of the payments. (By the way, if you’re looking at buying or leasing a car, take a look at this article from Edmonds.com.) Which also clears up the next question…
Can I lease a wrecker or rollback or Landoll trailer for a short time, say 6 months, to see if it is going to work for me? Nope, again. Sorry, but you wanted the truth, right?
Again, the banks don’t want to be in the towing business, and they don’t want to own a bunch of commercial equipment that they don’t understand and that they don’t have a huge consumer market for. (Yes, we’ve seen a few short-term commercial lease deals pop up on the internet from time to time, but those deals are very…unusual…in this industry — “unusual” here having the meaning of something you probably want to stay away from.)
So — whether you lease your commercial equipment or finance it, your down payment and your monthly payment are going to look pretty much the same. Plenty of times we’ve seen approvals from our best lenders changed from a lease to a loan or from a loan to a lease — depending on the customer’s accountant’s advice — and all the numbers would stay pretty much the same. Same money up front. Same monthly payment. The differences are in how the agreement is written up, often in how the equipment is titled (leases, usually titled to the lease company and tags/registration to you; financing, usually titled to you with a lien for the lender,) and the token purchase amount ($1.00 or maybe $101.00) at the end of a commercial lease.
“If you finance your equipment, your accountant can help you depreciate the cost… You could deduct the entire thing from your taxes in the first year, saving you tens of thousands of dollars on your taxes…”
So what’s the difference? Which should you do? In our world, it mostly comes down to your taxes and your accountant.
If you finance your equipment, your accountant can help you depreciate the cost. That means that you get to reduce your taxable income by part of the cost of the equipment — maybe over a few years, maybe all at one time. That second part is key — many customers deduct the entire amount, the whole thing, in the first year. Buying a $95,000.00 carrier? By one calculation, you could deduct the entire thing from your taxes in the first year, saving you tens of thousands of dollars on your taxes — see the information available on Section179.org for example. Believe it or not, there’s also good information here on the IRS website.
If you lease your equipment, your account can help you to deduct the cost of each lease payment from your taxes. If you don’t take advantage of the faster Section 179 depreciation, then you may be better off deducting each payment, saving less money each year but doing it consistently over, say, the life of a five year lease.
Full disclosure, here — we are not accountants. We don’t even play accountants on TV. We do, however, pay our own accountants a lot of money each year. (A lot. Yep. Makes us wonder if we should have gone to accountant school, or whatever you call it.) And yes, it is money well spent. You should try it. Go talk to your accountant, spend that time and money, and it will be one of the best investments you ever make.
Then come and get your equipment. New or used, financed or leased, we’ve got the trucks and equipment you need, and we’ve got the lenders to help you get it.
How do I get started? It’s easy.
More questions? You may find the answer on our Applying for Credit page, or call us today at 919-553-4038!